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12/21/2011

2012 and the Great (Compensation) Upheaval

The start of another new year is only a few days away and most of us are thinking about what 2012 has in store. Some among us are contemplating the end of the world on December 21st. Even though NASA assures us "nothing bad will happen to the Earth in 2012", some are convinced that the end is indeed coming in the form of a polar shift or a terrible solar storm. After all, the Mesoamerican Long Count Calendar ends on December 21, 2012 and who are we to question the Maya?

From a compensation perspective, 2012 is also likely to bring "great change". There are parallels between the prophecies about the way the world will end and what's likely to happen to compensation regulation during 2012:

End of Mayan Calendar and OFCCP's Rescission of Compensation Standards

December 21, 2012 marks the conclusion of the 13th baktun, the end of a Mayan Long Count period. We know this to be true. We also know that OFCCP has proposed the rescission of the Compensation Standards and Guidelines. It's highly likely that 2012 will mark the end of the Agency's use of a standardized methodology in investigating claims of compensation discrimination.

Both events could be interpreted as the end of the world as we know it. OFCCP contends the Standards have limited its ability to effectively investigate, analyze and identify compensation discrimination. OFCCP believes that the current methodology - multiple regression analysis based on similarly situated employee groupings is too "rigid", overly narrow and is not required under Title VII principles.

The "new world" of OFCCP enforcement will bring the use of "broad Title VII principles" rather than a defined methodology. The Agency could rely on any investigative approach or tool (both statistical and non-statistical) it deems appropriate on a case-by-case basis.

We don't know what will happen at the end of the Mayan calendar. It could be the end of the world, or another new calendar beginning on December 22nd could start and continue for another 4,000 years. We have a little more insight into what the end of the Compensation Standards will bring. Employers will be left with little, if any, formal guidance on the examination of internal pay equity under the best-case scenario. Under the worst-case scenario, we could be returning to an analysis method that doesn't account for legitimate nondiscriminatory factors influencing compensation, doesn't test the statistical significance of any difference found, and makes inferences of systemic pay discrimination based on a non-statistical and barely scientific method.

Polar Shift and EEOC's Focus on Systemic Claims of Discrimination

Some are hypothesizing that the end of the world will come in the form of floods, earthquakes and tsunamis as a result of polar shift. Under this theory, the north and south poles will change places in a matter of days, leading to planetary disaster.

A similar polar shift is taking place at the EEOC. Historically, the EEOC has focused on cases of individual discrimination. But that focus shifted with the launch of the Systemic Initiative, a program that prioritizes identification, investigation and litigation of 'pattern or practice' cases with a broad impact on an industry, profession, company or geographic location.

The EEOC's Fiscal Year 2012 budget proposal confirms its commitment to that initiative. According to EEOC Chair Jacqueline Berrien, a “strong, nationwide systemic initiative not only ensures that agency resources are directed towards addressing issues that will have broad impact in the workplace, but because systemic cases generate substantial media and other public notice, they help to deter other employers from engaging in similar prohibited conduct.”

This polar shift is likely to mean increased scrutiny from the EEOC, and it's possible that claims of individual discrimination initially filed with the agency could rapidly evolve into a class-wide investigation. Like the reversal of the Earth's magnetic poles, the shift of priorities at the EEOC could turn employers' worlds upside down.

Solar Storms and Wage & Hour Issues

Unlike the Earth, whose poles shift slowly over time, areas of the Sun's magnetic sphere can shift within minutes. Rapid changes in the magnetic sphere can lead to solar flares and coronal mass ejections. Scientists have discovered a pattern in these solar flares and coronal mass ejections - the Solar Cycle. According to the Space Weather Prediction Center at NOAA, we're approaching a solar maximum that could unleash static discharges and geomagnetic storms disrupting or disabling the electronic equipment we're so dependent on in every area of our lives.

On the wage and hour front, we may be in a similar Solar Maximum Season. The Department of Labor is focusing intently on misclassification, and is actively recruiting partners for its Misclassification Initiative. Recently, the DOL has has signed a Memorandum of Understanding with the IRS. Under this agreement, the DOL and the IRS will work together and share information to reduce the incidence of employee misclassification, to help reduce the tax gap, and to improve compliance with federal labor laws. Additionally, 11 states have signed similar memoranda with the DOL's Wage and Hour Division, and in some cases EBSA, OSHA, OFCCP and the Office of the Solicitor.

Nobody knows for sure how the storms during the Solar Maximum Season will directly affect us. We don't know exactly how the increased cooperation between the DOL and other federal and state agencies will affect employers. But in both cases, we do know there will be some effect. Like the Sun, the increased focus on misclassification - and wage and hour issues in general - is not likely to burn out any time soon. Employers can expect anything from minor disruptions (e.g., increased paperwork to be filed with the DOL) to upheavals of epic proportions (e.g., agency investigators on-site performing time and motion studies of all employees).

Final Prediction for 2012

My final prediction for 2012 is that it will be a year of upheaval, if for no other reason than people expect it to be a year of upheaval. In terms of compensation, regulation is likely to be the watchword. The Department of Labor and the EEOC will be paying closer attention to employers' compensation policies and practices. There are some changes on the horizon that could have a big impact.

My suggestion is to follow the advice of the "2012 survivalists" - stockpile some potable water and canned food, have some first aid supplies on hand, and plan some evacuation routes. Start looking at your compensation policies and practices now and get prepared. Or, you could just do nothing and wait for everything to be destroyed on December 21st - your call.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics and is the host of The Proactive Employer Podcast. Follow her on Twitter at ProactiveStats.

BTW, in addition, don't forget the new NLRB poster required for most enterprises notifying employees of their rights to organize, form a union and to engage in other protected concerted activity. It also specifies penalties for non-compliance with the posting requirement or for improperly restricting employee rights. You can be penalized and suffer an Unfair Labor Practice finding that could fast-track union recognition. It's simply the U.S. law as of 1/31/2012.